The owners of the giant Waitsia gas field intend to export half the gas rather than reserve it for the domestic market after securing state government approval for their plans.
The owners of the giant Waitsia gas field intend to export half the gas rather than reserve it for the domestic market after securing state government approval for their plans.
Gas from the Perth Basin, three hours north of Perth, has traditionally been supplied to industry in Western Australia’s South West.
However, project operator Mitsui & Co and its joint venture partner Beach Energy plan to chase higher returns by exporting half the gas from Waitsia through the North West Shelf venture’s Karratha gas plant.
Today’s update on Waitsia confirmed market speculation Mitsui and Beach were looking to export the gas.
The project update coincided with a statement from premier Mark McGowan, in which he said WA’s domestic gas policy would be tightened to prevent the export of local WA gas.
He then explained that Waitsia was an exception to the new policy due to exceptional economic circumstances created by the COVID-19 pandemic.
He added the government would allow Waitsia to export "some" of its gas as LNG for a "short" period of time.
A spokesperson for the premier told Business News the government was finalising arrangements with the Waitsia joint venture but confirmed it would allow the export of around 50 per cent of current Waitsia reserves.
“Further details will be communicated to the market once finalised, but we anticipate it will be around five years from the beginning of operation,” the spokesperson said.
In an investor conference call today, Beach Energy chief executive Matthew Kay said the Waitsia joint venture would export 1.5 million tonnes of LNG per year, starting in late 2023.
Industry sources have told Business News that is equivalent to nearly all the annual produciton from Waitsia stage 2, of 250 terajoules per day.
That implies it will export all production for the initial 5 years of the project, and will switch to domestic supply for the second 5 years of operaion.
The export of Waitsia gas will help to fill a supply shortfall facing the NWS venture’s Karratha gas plant, which will need extra gas in coming years because of the declining supply from offshore gas fields and delays to big offshore projects.
In practice, Waitsia gas will not actually be sent north to Karratha.
Instead, the exporting will be effected through a gas swap between the Waitsia joint venture and the NWS participants, to meet each sides respective domestic and export market commitmenets.
The NWS participants need to send the equivalent of 15 per cent of their gas to the domestic market.
Woodside Petroleum, which operates the NWS project, said today the project’s joint venture owners had agreed non-binding key principles for processing gas from both the offshore Pluto fields and gas "related to" the Waitsia fields.
“These agreements advance the NWS project’s plans to toll third-party gas at the Karratha Gas Plant as anticipated processing capacity becomes available this decade,” Woodside said.
Woodside said the ‘Pluto’ agreement will allow it to accelerate the production of gas from its majority-owned Pluto, Xena and Pyxis gas fields.
Woodside is continuing to evaluate development of its much larger Scarborough and Browse gas projects, which have been deferred because of the market downturn.
Beach Energy said today it would supply about 40 terajoules of gas per day into WA’s domestic market in the current financial year.
This will be sourced from its Waitsia stage 1 development, which is currently being commissioned, and its nearby Beharra Springs project, where the company is aiming to ‘debottleneck’ the existing gas plant.
The Waitsia Stage 2 development, which will notionally feed the Karratha gas plant, has an expected capacity of 250 Tj / day and will cost roughly $500 million.
Mr Kay declined to provide any details today on how much gas from Waitsia stage 2 would come into the domestic market.
In an investor slide, the company said WA’s domestic gas market would be “well supplied through the early 2020s, then tighten as existing supplies decline”.
That implies that the 5-year period during which the Waitsia JV is allowed to export, from 2023 to 2028, will be the same period when domestic supplies are tight.
Beach also said it was targeting further domestic market opportunities but provided no details.
Supplies to the domestic market come from muiltiple producers, including Santos, Woodside and Chevron in the north west.
Strike Energy, which is planning to develop the West Erregulla-2 discovery in the Perth Basin, is another likely supplier to the domestic market.
Beach said final bids from engineering contractors to developer Waitsia stage 2 were due next month and it was targeting a final investment decision before the end of December.
The project, which does not involve fracking, still requires environmental approval.
Meanwhile, the Australian Petroleum Production & Exploration Association (APPEA) today criticised the government’s new policy, saying it would discourage new investment.
APPEA’s WA director Claire Wilkinson said all responsible development should be encouraged, not stifled.
“Cutting off a potential market for any gas developed is a sure way to signal that WA is not open for business,” she said.
“Worryingly, there was no industry consultation on this sudden change to the domestic gas reservation policy.”
APPEA has repeatedly criticised WA’s domgas policy, which requires 15 per cent of gas from offshore fields to be reserved for the domestic market.
The policy has been in place for more than a decade and has bipartisan political support in WA.
The DomGas Alliance, which represents buyers of gas, had a qualified response to today's news.
"The decision to allow the Waitsia project in the Mid-West to fill available capacity at the Karratha Gas Plant and export some of its gas as LNG for a limited period of time is concerning if there is no additional domestic gas to compensate for the amount being exported," spokesman Richard Harris said.
"The Alliance acknowledges that this arrangement is driven by the delays to Browse and Scarborough LNG projects, but believes this should only proceed if the government commits to an overarching strategic policy to maximise the amount of gas coming into the domestic market.
The commentary on WA's gas market coincided with the ACCC questioning the efficiency of the east coast gas market.
The ACCC’s Gas Inquiry 2017-2025 Interim Report concluded that Australia’s east coast gas users are paying prices significantly above export parity prices.
“The ACCC is very concerned with the widening gap between domestic and export parity prices, which will have an inevitable impact on Australia’s industrial sector during what is already a difficult economic period,” ACCC Chair Rod Sims said.
“Queensland LNG producers sold 18 LNG spot cargoes into international markets in late 2019 and early 2020, equivalent to more than 10 per cent of annual domestic east coast demand.
“This gas was sold at prices substantially below domestic gas price offers, showing the importance of our continuing work to understand the drivers behind the price levels we are seeing across the domestic market.
“It is also clear that recent Australian contract gas prices do not reflect overseas forward prices.
“I am yet to hear a compelling reason from LNG producers as to why domestic users are paying substantially higher prices than buyers in international markets.
“When we have lower gas prices around the world, and the Australian market linked to world gas markets, it is vital that Australian gas users get the benefit.”
